Canfor Pulp Products Inc T.CFX

Those who know it the best, love it the least

[kboorman]

This image shows all currently active insiders listed on sedi.ca, the total ownership of all currently active insiders is 1.82% of shares outstanding. All buys by current insiders were made at multiple times the current price. Makes one wonder why they aren't pounding the table at this point. Obviously none of this is new info, I just cobbled it together to see it all in one place

 

[Catscratch]

It doesn't really make any sense that management and the board aren't interested in buying more CFX stock.  Based on the comments below from the Q2 conference call they are saying they think CFX's share price is undervalued and that there are strong operational opportunities and long term market fundamentals to support the sustainability of Canfor Pulp.... "Paul Quinn: Okay.

[kboorman]

If it makes you feel better (it doesn't make me feel better), insiders have also not made any buys at Canfor Corp since August of 2020, CFP's shareprice has gotten hammered hard lately

[Catscratch]

.... the answer to Kevin Edgson's question (below) is.... Why would anyone buy your stock if the board, CEO and execs aren't willing to. "Paul Quinn: Okay. And then just overall, I mean I take a look at the enterprise value of Canfor Pulp right now, and I’m seeing it’s around C$200 million. You guys have just kind of announced a $500 million rebuild effort. What is the market missing

[OmahaValue]

Exactly. Surely he understands that.

[Apaulson]

This Kevin Edgson guy better have something good to report on the next earnings call. I've never heard a Company's managment say something so clueless as Kevin Edgson did:    Kevin Edgson: I wish I understood, Paul. I’ve got a whole bunch of phone calls to make to find an answer to that." He better have something good to report on the next call, or we all know the

[Catscratch]

Kevin is an experienced and competent operator.  He's making some tough decisions that should payoff over the long term... not many pubco leaders think past the next quarter.   Lack of insider ownership at Canfor and Canfor Pulp is pervasive.  Execs and the Board at both Canfor and Pulp need more skin in the game.  

[Apaulson]

Yea, Kevin Edgson has really earned that $954k he made last year. He only lost the company ($80 million) in 2022 and the share price has only tanked 71% since January 1, 2022. Mercer International by comparison made $247 million in 2022.

[OmahaValue]

Kevin has made the right decisions on closing PG pulp and Taylor.  He is positioning the business to be successful for the long run - this will take more than a few quarters.   The next major decision is going to be around the reinvestment in Northwood.  Hopefully we get more information around the timing of that in the Q3 results. I would not get your hopes up for Q3. 

[Apaulson]

You make it sound like closing PG and Taylor was a proactive decision.  That was staring them in the face for a long time...if anything Kevin Edgson dragged his feet. They're just a commodity producer and the market views managment's statement that they plan to invest $500k into the pulp business as purely speculative without a decent chance of earning a sufficient return, otherwise,

[Catscratch]

My guess is Canfor is going to make a bid to take Pulp private for $3.25 per share.  Would be very opportunistic and unfortunate for long term CFX shareholders.  Pulp's board is not very independent and I'm sure they can payoff some "independent" banker to write a report saying $3.25 is fair.

[Apaulson]

My guess for Canfor Pulp is that it will continue to bleed money over the next 2 quarters, continue to draw down on its $160 million operating loan facility until the stock price hits at least $1.  At that point, the parnent co, Canfor Corporation and Jimmy Pattison may make an offer between $1.5. to $2.00.  Or, the parent company aquires the operating loan facility, makes an

[Catscratch]

Difficult to see that happening unless pulp prices meaningfully revert downwards and stay at all time lows for an extended period.  Without CFX needing significant/realistic financial lifeline it would be obvious that Canfor and Pattison forced a CFX bankruptcy to gain control... the costs/impacts on much more valuable assets from this strategy would far exceed simply taking CFX private (Cost

[OmahaValue]

Every pulp mill in BC is likely EBITDA negative in Q3 - it will be a challenging quarter for CFX but markets are improving for Q4.  Prices have notched up in September/October and future prices seem to be holding up for November/December.  USD/CAD FX also still very strong.  CFX should be in a postive EBITDA pricing environment for Q4 and hopefully into 2024. The wildcard will be

[carbide]

Good comments. Agreed they're not worth book.  Forest destruction has been apocalpytic, and these mills are uncompetitive.  But they may be valuable at some point. My guess is CFP makes an offer or restructures it near the end of 2024 or 2025 when the Finnish buildout is complete, and supply levels off as demand continues to rise (barring collapse of China and world economy). 

[kboorman]

Canfor pulp can now be had for less than $100m CAD, management no where to be seen

[Catscratch]

You'd think at some point Mercer or the Bentley family will step in to buy Canfor Pulp for pennies on the dollar.

[OmahaValue]

No kidding. The paper business alone is worth $75M+.   At this valuation, the pulp mills are free. West Fraser just sold their 2 BCTMP pulp mills for US$120M (CAD$165M).  Northwood and Intercon should be worth substantially more than that.   Whatever way you look at it there is a major disconnect in value here. Why Canfor Pulp management and board members are not

[Catscratch]

Lack insider ownership doesn't instill much confidence.  Clearly management and directors are just at Canfor to clip a paycheck. This misalignment of incentives translates to poor operating performance when comparing Canfor to peers.   Implementing minimum share ownership requirements would solve this.

[kboorman]

I don't think they'd ever implement such a requirement. They haven't been looking out for shareholders interests up to this point, why begin now? The arrangement seems to work well for them, with 3 out of 5 senior officers of the company getting large annual incentive bonuses when shareholders have been thrashed.